RetireMentors

Financial Planning

Social Security strategies for married couples

Ken Moraif, CFP, is a senior advisor at
Money Matters, a Dallas-based wealth management and investment firm with $3
billion in AUM. The firm works with pre-retirees and retirees, offering estate
and tax planning services, retirement plan consulting, and investment
management. He frequently outlines retirement trends in his weekly radio show, “Money
Matters with Ken Moraif” and highlights investment strategies in his book,
“Buy, Hold, and SELL!” You can follow Ken on Twitter:
@KenMoraif or
Facebook.

Updated to correct strategy No. 2, where a husband can file for spousal benefits under a restricted application once he and his wife have both reached full retirement age.

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Sooner or later, you’ll be filing for Social Security. Got a strategy?

Sooner or later, retirees will need to decide when to take their Social Security benefits. It is not a simple choice. It's a very, very complicated decision, and one that married couples will need to consider carefully before moving forward with a strategy that will secure their financial future.

Some factors to consider when deciding to take Social Security benefits include, work level, cost of waiting (or your "break-even" point), affect on a future surviving spouse, personal financial situation and life expectancy.

Below is a sampling of strategies designed to help married couples get the most from their Social Security benefits.

Strategy 1: Husband and wife take Social Security at age 62

If the married couple decides on this strategy, they will get a reduced amount, however, they are getting the benefits early.

From a financial standpoint, the question they might ask is "How long would it take if we waited and collected a larger amount to repay us the benefits we gave up while we were waiting?" The answer is that, depending on return on investment and taxable situation, it could take 11 to 15 years. So they might ask themselves if they are going to live that long.

The point is moot though if they need the money. If that is the case, they should go ahead and take it.

Strategy 2: Wife files for retirement benefits at age 62. When wife becomes full retirement age, 66, husband files for spousal benefits under a restricted application provided that he has also reached his full retirement age. Husband then files for his own retirement benefits at age 70.

In this scenario, the husband is claiming benefits based on his wife's. He’s delaying collecting his own benefits until age 70. The wife is receiving her age 62 benefits and the husband will start receiving a percentage of wife's age 66 benefits when she reaches full retirement age. Her benefits aren't reduced by this fact.

The husband allows his benefits to continue to increase uncollected until they max out at age 70. Since his benefits will increase by approximately 8% a year, when he does start collecting on his own benefits at age 70, the amount received will be significantly higher. Upon the husband's death, if the wife survives him, she will have the choice of continuing her own or switching to his benefits, whichever is higher.

Since the husband waited until age 70, the likelihood is that his benefits will be significantly higher and the wife will receive higher benefits for the rest of her life. This is a strategy that would be employed if the couple needs money now but also have a long life expectancy ahead.

Strategy 3: Wife takes retirement benefits at age 62. Husband files for retirement benefits at full retirement age and suspends his benefits. Wife files for spousal benefits at this time. Husband reinstates his benefits at age 70.

This is a great strategy to use when the husband is still working and we want to maximize how much Social Security benefits the wife will get. Once the husband has achieved full retirement age, he can file for benefits, but then suspend them. By virtue of him doing this, the wife can now file for half of his benefits. We are assuming here that half of the husband's will be more than the wife's current benefits, so we have increased the amount of her benefits. When the husband eventually reinstates his benefits at age 70, he will collect the higher amount and will have a higher death benefits amount available for wife upon his death.

These three strategies are by no means an exhaustive presentation of all the different variations that are available. Believe it or not, there are actually 81 combinations. The point of this article is to illustrate that the decision as to when to take Social Security benefits isn't as simple as it may sound. The repercussions of making the wrong decision can be in the tens of thousands of dollars. In strategies 2 and 3, for example, if the surviving spouse lives another 10 years, and the difference in benefits that spouse would receive is $500 a month, that represents $60,000 in additional benefits.

It is important that pre-retirees and retirees making this decision sit down with a knowledgeable financial adviser and determine the best course of action to take. It is very complicated and the repercussions of making the wrong choice could be very expensive.

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